Assume a beta of 0.8 for Pecom equity with respect to the global market. Assume market debt to assets at the time the beta is measured is 0.6. The Treasury rates in exhibit 18 are US Treasury rates. Assume the "sovereign risks" in exhibit 18 are the difference between the yield on the country's dollar denominated sovereign debt and the US Treasury rates of the corresponding maturity. Assume the market risk premium is 6.5% and the expected return on Pecom's debt is 7.5%. Finally, assume that Petrobras believes a target debt to capital of 0.5 is appropriate after take over. State any additional assumptions you make in arriving at your answers.
 

Assuming a tax rate of 35%, what is the WACC the ADR holder should use to discount Pecom's cash flows?

Answer rating: 100% (QA)

SOLUTION To calculate the WACC for Pecom we need to first calculate the cost of equity and the cost ... View the full answer